Johannesburg - The biggest banks know better than to publicly take on South Africa’s ruling African National Congress.
So when President Jacob Zuma sent markets plunging by replacing the finance minister with an obscure lawmaker, they rushed to lobby the ANC behind the scenes.
“Everybody in business that I know raised their concern and expressed their concern in every way possible,” said Bobby Godsell, the former chief executive officer of AngloGold Ashanti who represents some of the biggest companies in the country through the Business Leadership South Africa association.
As the rand plummeted to a record, banking executives, including those of Goldman Sachs Group and Barclays Bank locally, decided they had to do something. In their strongest intervention to reverse a government action, they went to meet ANC officials to tell them Zuma’s decision on December 9 to replace Finance Minister Nhlanhla Nene with David van Rooyen, a former small-town mayor with little experience, was a disaster, according to three people familiar with the situation. Nene’s removal wiped about 19 percent off the value of the banking index in two days.
Then senior ANC officials decided to confront Zuma.
By Sunday, ANC Deputy President Cyril Ramaphosa, Secretary- General Gwede Mantashe and three other senior party leaders told Zuma in a meeting that the situation needed to be rectified, Jessie Duarte, Mantashe’s deputy, told reporters on Tuesday. Zuma, she said, listened to their concerns and presented a solution.
The chaos ended late Sunday when Zuma announced the return of a familiar face to run the National Treasury, Pravin Gordhan, about 18 months after having been moved to the less important Cooperative Governance and Traditional Affairs Ministry. The rand gained 5 percent on Monday and strengthened 1 percent at 14.9522 to the dollar at 3.13pm on Tuesday.
Credibility gap
But it left another dent in the credibility of the economy with Africa’s biggest capital markets that’s teetering on the edge of a credit-ratings downgrade to junk.
Zuma said his reversal came after “serious consideration and reflection” and that he had “many representations to reconsider”.
It wasn’t the first time he’d yielded to public pressure. He scrapped plans to raise university fees in October following the biggest student protests since the end of apartheid ended up on the front lawn of his offices at Union Buildings in Pretoria, the capital.
A former party spy chief, Zuma consolidated his hold over the ANC since becoming leader in 2007 through his control of local branches. His colourful private life and the frequent public scandals surrounding him had drawn the ire of ANC seniors before. His refusal to accept any responsibility for the R215 million of public money spent on a makeover for his private rural home drew rebuke from within the ANC.
Decision unexplained
What kept him safe for so long was his adherence to one rule: don’t mess with the finance ministry or the central bank. That changed on December 9.
The president’s failure to explain his decision to oust Nene fuelled speculation about the reason. Was it related to Nene’s reluctance over the nuclear power plant programme, which would cost as much as $100 billion? Or was it because of his decision to prevent the renegotiation of a plane-leasing deal between the national carrier and Airbus Group SE?
The fiasco has fomented internal ANC opposition to Zuma’s presidency. Mike Maile, a long-standing party member from Johannesburg’s Alexandra township who knows the party’s top leaders, took to Facebook and Twitter to vent.
Markets calmed
“We have no reason for failing to recall the worst president since the dawn of democracy,” Maile said on Facebook. “Zuma is a joke!!!”
After a meeting over several hours, the ANC’s National Working Committee publicly rallied behind Zuma, praising his willingness to listen and accept his mistake, according to a statement from the meeting.
While the ANC has decisively won every election since the end of apartheid in 1994, its majority has slipped to 62 percent, and the party could lose control of several cities in local elections next year. Although the ANC still commands widespread loyalty, Zuma has come to represent its failure to turn political freedom into economic equality.
Gordhan’s return has brought about the desired effect of calming markets, to an extent. The rand strengthened as much as 6 percent against dollar, and yields on rand-denominated government bonds due in December 2026 dropped. The banking index rose the most in nine years.
It was an improvement, but not a total reversal.
“The damage has been done to confidence,” Anne Fruhauf, an analyst with Teneo Intelligence, said in a phone interview on Monday. “In the past this would have been unthinkable. The checks and balances should have kicked in way earlier. It’ll be up to Pravin Gordhan to bring us back to zero.”
Spending constraints
Gordhan did his bit to try to shore up confidence in South Africa at a press conference on Monday.
“We will stay the course of sound fiscal management,” he said. “Our expenditure ceiling is sacrosanct.”
Nine chief executive officers, including Goldman’s Colin Coleman and Investec’s Stephen Koseff, said they were grateful that Zuma’s office listened to input from themselves as well as other South Africans, according to an e-mailed statement. When contacted, Barclays Africa’s spokesman Tim Kiy declined to comment.
“It was vital that the South African government send as strong a signal as possible to both citizens and investors,” they said in a statement. “Minister Gordhan brings a wealth of experience and is well known to, and trusted by, the international investment community.”
While the finance ministry is back in safe hands, Zuma’s credibility has taken a knock. The question for him now is whether his attempt to tamper with one of South Africa’s bastions of stability will cost him his own job.
* With assistance from Amogelang Mbatha
BLOOMBERG